Three Certainties

Question 1

What are the three certainties?

Answer 1

1. Intention - how? is the arrangement intended to be a trust at all. is it supposed to be a different arrangement?
2. Objects - who? who is supposed to benefit, can they be identified?
3. Subject matter - what? what property is being dealt with - if can’t identify property there is no trust.

Question 2

What is the main purpose behind the three certainties?

Answer 2

Asking: are the arrangements sufficiently clear to give rise to an enforceable trust?

All three must be present for a trust to arise.

Question 3

What is certainty of intention?

Answer 3

One of the three certainties necessary for the creation of an express trust.

Certainty is a requirement for the creation of an express trust - an express trust is one which is brought into existence by an intention to create it.

Question 4

What is the requisite intention for an express trust?

Answer 4

Requisite intention is an intention to impose or assume the duty which is characteristic of a trust.

Question 5

How can you ascertain requisite intention?

Answer 5

A person’s intention can be ascertained from their words (spoken or written) and conduct.

Most trusts (other than trusts of land and testamentary trusts) have no prescribed formalities, meaning they can be created formally or informally, whether in writing or otherwise.

Question 6

What approach to courts take when determining whether a person intended to create a trust?

Answer 6

The courts adopt an objective approach in determining whether a person intended to create a trust.

If they manifest an intention to impose or assume the duty which is characteristic of a trust, they intend to create a trust.

It is irrelevant that they do not actually intend to create a trust or are unaware that such a thing even exists.

Question 7

What approach to courts take to written documents when determining whether a person intended to create a trust?

Answer 7

The intention of the author(s) of a document is ascertained by identifying the meaning of the words which they have used. The meaning of the words is ascertained by reference to:

• Their natural and ordinary meaning
• Any relevant contextual features of the document
• The facts which were known to or assumed by the author(s) of the document when it was created
• Common sense

Question 8

Does the word ‘trust’ need to be used to find certainty of intention?

Answer 8

No. Use of the word ‘trust’ is a good indicator that a person intends to create one. But it is not determinative either by its presence or absence.

• The fact that a transaction is characterised by the transacting parties as a trust is not conclusive as to its nature.
• The fact that a transaction is characterised as something other than a trust does not prevent it taking effect as a trust if it generates the duty which is characteristic of a trust.

Crucially the nature of a relationship or transaction is determined by reference to the substantive rights and duties which it creates and not by reference to how it has been characterised by the parties.

Question 9

What is good evidence of certainty of intention to create an express trust?

Answer 9

1. Segregation of funds in a separate bank account which has been earmarked for a particular person or purpose. (not conclusive evidence that a trust is intended)
2. Treating a sole bank account as joint: ‘this money is as much yours as mine’ (note: ordinary people, bank account had joint bingo winnings in it and withdrew funds for joint use)

Question 10

Can the other certainties affect certainty of intention?

Answer 10

Yes. In cases where subject matter or objects of an alleged trust are vague or uncertain - the only sensible interference is that there was no intention to create a trust at all.

A trust is a duty. Unlikely that a person intends to impose a duty if the alleged duty is so vague that the person required to discharge it is unable to identify what they are required to do.

Question 11

Does certainty of intention requires the settlor to understand that they are creating a trust?

Answer 11

No.

Question 12

What are the two requirements for certainty of subject matter?

Answer 12

1. The trust property requirement: it must be possible to identify the trust property
2. The beneficial entitlement requirement: it must be possible to ascertain the beneficiary’s interest in the trust property

Question 13

What are the two principal features of a trust?

Answer 13

1. A duty: duty to hold property for beneficiaries or to apply it for their benefit
2. A property right

Question 14

Why is certainty of subject matter important?

Answer 14

1. The duty to hold property for beneficiaries or to apply it for their benefit is meaningless unless it is possible to identify the property to which it relates.
2. The assertion of an equitable property right is futile unless it is possible to identify the property against which the right is being asserted

Question 15

When might certainty of subject matter be problematic?

Answer 15

1. A person attempts to identify the trust property by description
2. A person attempts to create a trust of a specific number of items from a larger quantity of similar items without identifying those to be held on trust

In cases where a trust is created by transferring assets to a trustee, the trust property can be easily identified: it is the assets which are transferred.

Question 16

Certainty of subject matter: identifying subject matter by description

Answer 16

In cases where the trust property is identified by description, the trust will fail for uncertainty if it is not possible to ascertain the trust property from the description.

e.g. trust of the ‘bulk’ of their estate - how much constitutes bulk?
e.g. net assets - abstract sum

Question 17

Certainty of subject matter: identifying subject matter out of larger mass

Answer 17

Fractional interest: no problem creating a trust over a fractional interest of a wider mass

Specified number: difficulty arises - especially with tangible items e.g. which diamonds? or non-fungible

Question 18

Tangible vs Intangible assets

Answer 18

Tangible assets are physical assets such as diamonds or cash.

Intangible assets do not exist in physical form such as company shares, intellectual property rights, debts

Question 19

Fungible vs Non-fungible

Answer 19

Assets are described as fungible is they are identical and readily exchangeable like ordinary shares. Although price of shares may vary over time they will all be worth the same and are interchangeable.

Diamonds are an example of a non-fungible item, although they have similarities they may be distinguishable in cut, colour and clarity. May not have same value and are not interchangeable.

Question 20

Can you declare a trust over fungible/non-fungible, tangible/intangible assets without identifying specific assets?

Answer 20

It is only possible to declare a trust over a specified number of intangible fungible assets forming a wider bulk without identifying the specific assets forming the subject matter of the trust.

Not possible for any other combo.

Question 21

What is the beneficial entitlement requirement for certainty of subject matter?

Answer 21

It must be possible to ascertain the nature and extent of the beneficiary’s interest in the trust property.

If not possible to do so, the trust will fail.

If decision of who gets what under a trust is left to someone and they die before deciding the trust will fail. (this can be avoided with good drafting)

Note: trusts can fail for certainty when initially declared or subsequently

Question 22

What is certainty of objects?

Answer 22

Needs to be certain so that the trust can be regulated and if necessary enforced by the court. Usually objects of a trust will be people but this will not always be the case.

If not possible to say who the objects are, it may not be possible to properly administer the trust.

Question 23

What is the test for certainty of objects?

Answer 23

Test for certainty of objects depends on the type of trust in question.

Greater degree of certainty is required for a fixed trust than for a discretionary trust, because the trustee is required to divide the property exactly as the settlor has instructed.

Fixed: Trustees must know exactly who is to benefit (certainty of object) and how much they are to receive (certainty of beneficial entitlement). If there is uncertainty, the trust will fail (in whole or in part).

Discretionary: the power afforded to the trustee in a discretionary trust allows courts to apply a less stringent test of certainty. This is because the trustees are not required to divide the property between all the objects and thus they do not need to be able to identify them all.

Where a power of appoint exists: the donee of the power is not required to exercise the power. Therefore they do not need to be able to identify all the potential objects of the power.

Question 24

What is a fixed trust?

Answer 24

A trust in which the settlor sets out the entitlement of each beneficiary in the trust instrument. The beneficiaries and their individual entitlements are ‘fixed’. It is the nature of fixed trusts that each beneficiary has a definable interest.

Question 25

Beneficiaries under a fixed trust (certainty of objects)

Answer 25

Single beneficiary: simplest case - a fixed trust will have a single beneficiary who is entitled to the entire trust fund. If there is certainty as to who the settlor intended to benefit there will be certainty of objects. If there is uncertainty as the to the intended beneficiary the trust will fail.

Multiple beneficiaries: if there is uncertainty as to the identity of one or more of those beneficiaries, the trust will not necessarily fail completely. If the identifiable beneficiaries have a beneficial entitlement which is not dependant upon the entitlement of the uncertain beneficiaries they can still take their interest.

Question 26

What is the test for certainty of objects for a fixed trust to be distributed in fixed proportions?

Answer 26

Test is known as the ‘complete list test’: it must be possible to draw up a complete list of all the beneficiaries. Such tests require both conceptual and evidential certainty.

Question 27

Complete list test: conceptual certainty

Answer 27

Refers to the precision of language used by the settlor to define the class of persons whom they intend to benefit.

If the objects of the trust are not clearly defined, it will not be possible to draw up a conclusive list and the trust will fail.

Question 28

Complete list test: evidential certainty

Answer 28

Refers to the extent to which the evidence in a particular case enables the trustees to identify the objects of the trust.

Question 29

Certainty of objects: power of appointment

Answer 29

Power of appointment must satisfy the test of certainty of objects in order to be valid.

If the donee of a power is not able to determine who falls within the class of objects they risk exercising the power improperly.

For a court to constrain improper use of the power must be able to determine whether the individual making a claim is or is not a member of the class of objects.

Test: is/is not test or any given postulant test - not necessary to identify every single member of the class.

Question 30

Discretionary Trusts: Certainty of objects

Answer 30

Need to carry out a survey of the class which is appropriate to the particular test e.g. small family trust more likely to consider every individual rather than a large commercial trust.

DO NOT use complete list test

USE: is/is not test

Question 31

Is/Is not test

Answer 31

Test requires a trustee to be able to say with certainty whether ‘any given individual is or is not a member of the class’.

Still requires conceptual certainty: if the objects of the trust are not clearly defined, the trustees will not be able to apply the is/is not test with certainty.

Still requires evidential certainty: more difficult practical question (e.g. what happens if the trustees don’t know how many children the settlor has?)

Question 32

What happens if there is no conceptual certainty (discretionary trust)?

Answer 32

If the definition is unclear, there will be categories of people of whom it is not possible to say with certainty whether they are intended to be objects or not:

• The trustees will therefore not be able to properly survey the class and therefore will not know the scope of their power or duties
• Potential claimants will not be able to determine whether they have a right to compel proper administration of the trust
• And if there is an allegation that the trustees have made a distribution to someone outside the class, the court will not be able to say whether the trustees have acted inside or outside their powers

Examples of conceptually certain classes: employees, children, relatives (although can be problematic as to where the line is)

Friends would not be conceptually certain.

Question 33

Discretionary trusts: evidential certainty

Answer 33

• For the claimant to prove to the trustees satisfaction that they are within the class. If they cannot prove that they are in the class they are considered to be outside it.

Trust will not fail for some evidential uncertainty.

Question 34

Can a discretionary trust fail if the class is too wide?

Answer 34

Yes. If so hopelessly wide as not to form anything like a class so that the trust is administratively unworkable it will fail e.g. all the residents of greater london or inhabitants of west yorkshire.

But will not invalidate a power of appointment.

Question 35

What is the test for discretionary trusts and fiduciary powers for certainty of objects?

Answer 35

Is/Is not test

Requires conceptual certainty but is able to accommodate some evidential uncertainty.

Question 36

What is the test for fixed trusts for certainty of objects?

Answer 36

Complete list test.

Required conceptual and evidential certainty.

Question 37

Does the number of objects affect the validity of a fiduciary power?

Answer 37

The number of objects of a fiduciary power does not affect the validity of the power.